Digital Government: How Estonia’s Innovation Could Make Them International Superstars

Here’s a problem you’ve probably never thought about:

What does it take to make a country more attractive?

This is something every government tries to figure out.

The winners of the 20th century?

The US, of course.

By establishing a sustainable soft power, the American government positioned the country as a leader in many industries (Silicon Valley, Hollywood, Wall Street, Broadway…). As a result, lots of foreigners probably know more about the US than American citizens themselves.

A strong positioning strategy and being innovative can be very beneficial to a country.

So how do marketing and the art of positioning apply to a country?

 

1. Why Positioning Matters for a Country?

Countries are competing with one another to export goods & services, and also to attract tourists, talent, companies, and investors.

At an age where moving abroad becomes easier and easier, governments are even going to “compete for every citizen” as Teleport CEO Sten Tamkivi likes to highlight. Businesses are one click away from the competition. This phenomenon has also become the case for countries.

How do you decide where you want to travel, in which country you want to work, and where you want to invest your money? You can search, compare, and take actions all online. It’s how we make decisions these days — and it forces countries (more so than ever before) to develop a real marketing strategy.

To succeed in our hypercompetitive society, a country must create a ‘position’ in the minds of tourists, investors, entrepreneurs, and workers.

A country must take into account not only its own strengths and weaknesses, but also those of ‘competing’ countries.


Countries Have KPIs (Like Businesses Do)

Businesses rely on Key Performance Indicators (KPIs) to measure their progress. For example, Google measures its progression using Objectives and Key Results (OKRs).

This is the same for countries that monitor their Gross Domestic Product (GDP), as well Human Development Index (HDI) and other types of indicators, which include more parameters like happiness and environment.

And these broad metrics are broken down in an endless number of objectives such as developing tourism, attracting foreign investment, increasing export, improving education, and keeping the citizens happy.

Countries can influence these parameters by having the right marketing strategy. The reason? This has some implications on how citizens and foreigners perceive the country.


Country-of-Origin Effects on Perceived Brand Positioning

What comes to mind if I say, “Japan”?

Food (sushi), cars (Toyota), electronics (Sony, Nintendo), life expectancy (83.7 years in 2015).


Life Expectancy in Japan


Country-of-origin is a quality cue for consumers, tourists, and investors.

Evaluating countries is complex; there are too many variables. The solution for an individual is to rely on the country-of-origin stamp. It’s a short-cut the mind uses to reduce the perceived risks of buying, moving in, and investing.

The importance of country-of-origin (as a quality cue) increases in situations when we lack information.

For example, this is helpful for investors. Without looking at any data, most people believe that US T-bonds are reliable investment vehicles. That’s because they believe the US has a strong economy and will never go bankrupt.

The less information someone has, the more likely it is that the country-of-origin will act as a brand itself.


Country-of-Origin-Effect - Scientific Paper


“A brand’s country-of-origin can influence the brand’s perceived positioning by reducing perceived risks, acting as a guarantee and enhancer for the positioning strategy. Thus it can influence consumers’ buying decision process and offer a significant competitive advantage.”  

Country-of-Origin Effects on Perceived Brand Positioning

Coming from a country with a strong positioning strategy is an opportunity for businesses to position their products quickly and at a lower cost.


Adam Smith Wrote One of the First Books about Positioning: The Wealth of Nations

In 1776, Adam Smith told the world what he realized. Division of labor has caused a greater increase in production than any other factors.

“Nobody purposely invented industrial specialization with all its advantages for wealth creation. Rather, specialization evolved gradually — as a by-product of the natural human propensity to truck, barter, and exchange one thing for another.”  

— Adam Smith, The Wealth of Nations (Book I)

More supply means more choice for today’s consumers, tourists, and investors.

As their attention becomes more and more polluted with choice, this triggers a real need for positioning. How do you make sure that today’s consumers, tourists, and investors know (and tell their friends) what your country is about?


The Wealth of Nations: First Book about Positioning


“The greatest improvement in the productive powers of labour, and the greatest part of skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.”  

— Adam Smith, The Wealth of Nations (Book I)

The division of labor is a great opportunity for smaller countries to specialize and provide larger countries with the things they really need.


Small Countries vs Big Countries

If competing countries are one click from one another, how can a small country compete with larger ones?

How can Singapore (5.4m) compete with China (1,357m)? How can Estonia (1.3m) compete with the US (318.9m)?


GDP: Estonia vs. USA


Here’s how:

Smaller countries need to be different and remarkable at what they want to be known for. They can’t compete directly with bigger countries.

If you want to succeed as a small country, you need to build a global brand. Why? Because a small country’s internal market is simply too small. Singapore and Luxembourg figured this out. They are small countries that focus on serving the world.

And as a small country, you can’t be everything to everyone. You need to specialize. What makes a small country wealthy is specialization.

As positioning specialist Laura Ries mentioned:

“Everybody wants to expand while the real success comes from being focused.”

A narrow focus is key to getting a strong position in people’s minds.


Big Countries Can Rely on Many Positions

Even larger countries need to specialize…

This is the consequence of the Ricardian model of comparative advantage.

The US is a great example. The country is full of business clusters: Tech and innovation (Silicon Valley), movie/music industry (Hollywood), finance and advertising (New York)…

(You can extract the data from the American Cluster Mapping Project conducted by the Institute for Strategy and Competitiveness at Harvard Business School.)


Clusters in the USA from the American Cluster Mapping Project


Here’s an example with IT business clusters in the US.

Being part of a business cluster is beneficial thanks to the Country-of-Origin effect. A “startup from Silicon Valley” sounds more viable than a “startup from Iowa”. Startups from Silicon Valley benefit from the positioning strategy of Silicon Valley.

Once a cluster effect occurs, it can be leveraged by the right positioning strategy to influence how people perceive businesses coming from the area.

Smaller countries benefit from the cluster effect too. But they can’t afford having many clusters. They need to focus on just one, the right one.

 

2. What Does Positioning a Country Entail?

Positioning is how you differentiate your product/service in the mind of your prospects.

As positioning expert Laura Ries told me in a recent episode of Unlock People’s Potential:

“The essence of positioning and building a brand is narrowing the focus so that you can stand for something.”

The 4 Major Laws of Positioning

Al Ries (Laura Ries’ father) and Jack Trout popularized the concept of positioning. They also co-authored one of the best books about marketing, the 22 Immutable Laws of Marketing.



The laws of marketing make a lot of sense. And they’re very simple—though not very easy to execute. And among these 22 laws, four of them are critical to the concept of positioning. That’s because they’re the best way to understand people’s buying decisions:

1. Law of the Mind: It’s better to be first in the mind rather than to be first in the market.

2. Law of Category: If you can’t be first, then you should set up a new category you can be first in. Marketing is more a battle of category than a battle of brands. Most companies try to create “better” products rather than to set up a new category.

3. Law of Perception: Marketing is not a battle of products, it’s a battle of perceptions in the mind of the customers. You have to match what’s in the mind if you want to succeed.

4. Law of Focus: The most powerful thing in marketing is owning a word in the prospect’s mind. So narrow the focus down to what you want the prospect to remember from you.

And when you get them right, the results can last for a while.


Positioning a Country Gives Lasting Results

Implementing a positioning strategy requires a long-term approach. But when you get the equation right, the results can last for centuries.

Think about luxury goods.

It is not surprising that when you think about luxury goods, you think about France.

This is the result of the work of one man:

Jean-Baptiste Colbert, who served as the Minister of Finances of France from 1665 to 1683 under the rule of King Louis XIV.

“In a mercantilist age Colbert was the supreme mercantilist. His program was to build up the economic strength of France by creating and protecting French industries, encouraging exports, and restricting imports (especially of luxury goods). By endless regulation and supervision, he tried to make French industry, particularly in luxury items, first in Europe; he was partially successful, for the French tradition of high quality in certain fields (for example, tapestry and porcelain) dates from his time.”  

Encyclopedia.com on Jean-Baptiste Colbert

Marketing guru Seth Godin summaries it well saying that Jean-Baptiste Colbert “invented luxury goods as a category”.


Positioning of France in the Luxury Industry

Extract from Linchpin by Seth Godin


The question of whether Colbertism was a good or a bad strategy is another topic.

What really matters is what Colbert demonstrates. Having a clear vision and implementing a positioning strategy with consistency can produce lasting results.

France’s positioning was built artificially. Obviously, Colbert had good grounding to work from. There was already a culture of elegance and craftsmanship in France. He could not have taught non-artisans to work. There was some consistency between the culture, the industry, and the positioning strategy.

Ancien Régime Paris became the epicenter of European style. It wasn’t surprising that Colbert considered that “fashion [was] to France what the gold mines of Peru are to Spain”. As Amanda Vickery mentioned in the Guardian:

“French manufacturing was geared to the carriage trade. Demolish the Paris luxury industry, the Baroness d’Oberkirch [said], and French international supremacy would wither overnight.”

The luxury industry in France is still benefiting from Colbert’s marketing strategy skills. Among top luxury brands, most of them were created in the 20th century. But they are still the heritage of Colbert’s work and a demonstration of having a cluster effect.


Ideas Are Cheap, Execution Is Everything

Defining the right positioning strategy is one thing, but execution is what really matters.

Jack Trout and Al Ries shared some guidance in their classic article about implementing a positioning strategy. Answering the following questions can help you make it real:

  1.  What position, if any do you already own in the prospect’s mind?
  2.  What position do you want to own?
  3.  Do you have enough resources to occupy and hold the position?

“A big obstacle to successful positioning is attempting to achieve the impossible. It takes money to build a share of mind. It takes money to establish a position. It takes money to hold a position once you’ve established it. The noise level today is fierce. There are just too many “me-too” products and too many “me-too” companies vying for the mind of the prospect. Getting noticed is getting tougher.”  

— Jack Trout and Al Ries

To nail a positioning strategy, a country needs to work on three elements:


#1 Creating a Competitive Advantage

What is unique about the country?

This is a central question that should guide the overall marketing strategy.

Michael Porter refers to the concept of ‘competitive advantage’ to describe what allows an organization to outperform its competitors. He goes beyond the Ricardian model of ‘comparative advantages’ by including more attributes than cheap labor and natural resources.

The right positioning strategy is based on a mix of organic and artificial advantages.

We’ve seen it with France. A country often relies on an existing leading industry or an existing perception or advantage in order to position itself.


#2 Fitting with the Reality

A competitive advantage has to be real. A country cannot use advertising to distort reality. This is why being innovative is crucial to any country.

Sometimes the country has to build it. Sometimes it already exists and the government just needs to encourage it—and sometimes encouraging means giving more freedom rather than putting more control.


#3 Communicating the Positioning Strategy

Once a competitive advantage has been chosen and become reality, the country has to push the message through PR and advertising campaigns.

“Perhaps the most important factor in the success of tourism advertising is the subjects you choose to illustrate. My advice is to choose things that are unique to the country concerned.”  

— David Ogilvy

David Ogilvy, who mastered the art of advertising, highlighted the importance of working on creating a long-term image. Sometimes there’s a reason for a short-term move. But the brand of country doesn’t change easily.


David Ogilvy on Advertising for a Country


There’s a need for consistency and a long-term approach.

Positioning = Consistency of Message + Reality + Image

The message has to match the reality and the perception (i.e. the image) people have of the country. It requires countries to do before they talk about what they want to achieve.

The reason is credibility.

You couldn’t position Luxembourg as being the go-to-place for summer holiday. Luxembourg has some competitive advantages, but it cannot beat Croatia for this purpose.

 

3. What Is the Positioning Strategy of Estonia?

In a world that is increasingly connected, Estonia chose a simple positioning strategy to address the needs of the business world:

Estonia = Digital

There’s a reason for this strategy. It’s above all a very practical choice. Digital is a means to deal with Estonia’s internal challenges as well as to develop international trade in the country.


The Roots of Estonia’s Positioning Strategy

Embracing a positioning strategy takes time. Estonia didn’t start recently — they began 25 years ago.

Estonia is “The Little Country That Could ” as Mart Laar, the first Prime Minister described it. Post-soviet union, Estonia was independent and left with a declining economy.

Estonia is a small country in northern Europe that has an innovative digital government.

Estonia (in red) is located in Northern Europe and faces the Baltic Sea and Gulf of Finland.


Instead of relying on existing foreign infrastructures, the government decided to build its own public services. With limited resources, it was forced to be innovative and leverage government technology as a way to save money and time.

Taavi Kotka, Government Chief Information Officer, told me that Estonia’s focus on digital was a very practical decision.

Taavi Kotka is Estonia's government CIO and is known for leading the e-residency program.

Estonia’s CIO Taavi Kotka.


Estonia is a relatively big country—bigger than Switzerland—but it only has 1.3m inhabitants. It was physically impossible to serve everyone. Many people live in very remote areas. The country needed an innovative way to serve them; e-Estonia was born.

And since then, Estonia has been building upon its failures and success stories.

In the same way Colbert took advantage of fertile ground to install French craftsmanship and the luxury industry, the Estonian government took advantage of nonexistent infrastructure for public services to develop the bedrock of a digital industry in Estonia.

Today, Estonia is leading in government technology and digital public services. And the country just started opening its doors to foreigners and other countries.


Estonia, the Delaware of Europe?

Where is Google incorporated? Palo Alto in California, right? Not exactly.

According to The Guardian, “Google was founded in California and incorporated there in 1998, but in August 2003, a year before its initial public offering, the group reincorporated in Delaware.”

Where is Coca-Cola incorporated? Its beautiful headquarters in Atlanta? Nope. Delaware again.


Coca Cola Incorporated in Delaware


In the US, Delaware is this tiny state that attracts more than 1 million companies (and only 900,000+ inhabitants).

Delaware acts as a sort of corporate haven with its laissez-faire-type laws.

Delaware (in red) is a small U.S. state bordered by the Atlantic Ocean, Delaware River & Delaware Bay.


The reasons?

An interesting tax policy and laissez-faire corporate governance.

Estonia’s positioning shows that the country wants to use government innovation and its expertise in digital to attract talent, investors, and entrepreneurs. Like Delaware, it also understands that people might not be willing to relocate to Estonia. But they’d be keen on taking advantage of the services Estonia offers.

By reinforcing its positioning strategy, Estonia has one goal: Increasing the number of relationships between businesses and its country. Kaspar Korjus, the program director of e-Residency, wrote in a column for TechCrunch:

“The more people and companies engaged with the Estonian business environment, the more clients there are for Estonian companies.”

Kaspar Korjus is the e-Residency Program Director in Estonia.

Estonia’s e-Residency Program Director Kaspar Korjus.


Of course, credibility matters. Estonia needs to be consistent with its communication (message), its initiatives (reality), and how people perceive both (image).

Remember:

Positioning = Consistency of Message + Reality + Image


Message: What Estonia Says about Itself

“In Estonia, broadband internet is a human right, not a privilege.”

This is what you can read on the official website Invest in Estonia.

The message is clear. Digital is an essential part of Estonia. As Kaspar Korjus highlighted:

“The country recognized that in order to compete economically as a small country in a new digital world, it needed to seek a competitive advantage by fostering a business climate that produced innovative technology. Today, 25 years since independence, Estonia has one of the most developed national digital infrastructures in the world.”

Estonia has been innovating in government technology for 25 years. The country wants the world to know about its strengths and expertise.


Reality: How Does Estonia Innovate?

But does the message match the reality?

The Estonian Mindset: Everything Is Done the e-Way

I asked Estonian entrepreneur and investor Ivo Remmelg what makes Estonia special at the moment.

Here’s what he told me:

“That is the Estonian mentality. Everybody really thinks that everything can be done the e-way, even the government. That helps.”

Having the right mindset does help.

Ivo Remmelg is not the only one stating this fact. When I visited Estonia in February, I heard this so many times. Estonians are early adopters. They were among the first to embrace peer-to-peer networks with Kazaa and Skype. And they’re now innovating by providing people with advanced public services—what Taavi Kotka calls “Country as a Service“.

The digital mindset is a clear competitive advantage that allows Estonia to build IT services at a reasonable price. The IT budget in the UK is 400 times larger than in Estonia; yet Estonia’s services are technologically more advanced.

The result is compelling:

90% of Estonians pay their tax online. 30% of them vote online for Presidential elections… In fact, in 2007, Estonia became the first country to allow online voting in a general election.

Now that’s a demonstration of a digital mindset!

Digital at the International Level

Besides being digital, Estonia has a global mindset. The country is very active on the international scene.

International organizations trust Estonia for being at the cutting-edge of IT and security. As a result, the country hosts both the Cyber Security Centre of NATO and the IT-agency of the European Union

Estonia is also one of the founding members of the D5, a network of governments with the goal of strengthening the digital economy. The members are: Estonia, the UK, South Korea, Israel, and New Zealand.

The e-Residency Experiment

Estonians are hardcore users of e-Services. And they want everyone to follow the trend. This is how the country could become the Delaware of Europe (or of the world?).

Since 2015, the country offers e-Residency to foreigners who want to benefit from some of its administrative e-Services. By becoming an e-Resident, you can manage a bank account remotely as well as administer a company from anywhere in the world.

Wait, but why?

The Estonian government is aware of two things:

  1.  Estonia is a small country in Eastern Europe. The chances of many people moving to Estonia are slight.
  2.  The connection economy is making the world borderless.

Here’s what e-Residency director Kaspar Korjus told me: The goal is to provide entrepreneurs with a digital environment that allows them to escape from red tape. Estonia will benefit indirectly from it, since e-Residents are then more likely to do business with Estonian companies.

So far, it’s working. In less than 2 years, almost 800 companies have been incorporated in Estonia by e-Residents, according to the e-Residency Dashboard—an amazing example of transparency.


e-Residency Dashboard


Unlike Delaware, Estonia doesn’t want to redirect taxes to its country. The e-Residency is supposed to make it easier for e-Residents to pay tax in their home country. Why not an alternative revenue model? There are more opportunities than just taxing citizens and companies to make money.

Kaspar Korjus told me that the goal is to build a global platform for e-Services, a Country as a Service. The Estonian government is thinking about alternative business models (e.g. Apple’s 30% commission on the App Store). Tax won’t be the way to make money out of the e-Residency program.

The e-Residency is Estonia’s biggest move to demonstrate its willingness to be seen as the most advanced digital country.


Image: Is the Business World Aware of the Message and the Reality?

So how do influencers react to these strategic innovations? Do they perceive Estonia as being an advanced digital country?

Is Estonia building a Country-of-Origin Effect?

1. What Journalists and Experts Say about Estonia

“The Most Technologically Advanced Country”

Journalists and experts are very optimistic about Estonia. They understand that the country is working in hard in government innovation. This makes them excited.

In a documentary about e-Estonia, Clare Sullivan, a cyber law expert said: “[Estonia] is by far the most advanced e-society in the world and one of the most advanced e-economies in the world and it’s doing very exciting things.”

In Industries of the Futures—an interesting book about the future of technology—author Alec Ross dedicates an entire section to Estonia (one of the only countries covered in such depth). He mentions the country as an example of an innovative and open country.

“The real success of Estonia is reflected not only in these statistics, but also in its place as one of the world’s leading centers of innovation.”


Estonia's Positioning Strategy


Estonia has even been called: “the most technologically advanced country in the world” by Wall Street Journal’s MarketWatch.


This tiny country is the most technologically advanced in the world


“Estonia Is Run Like a Startup”

Like startup founders, the Estonian government is willing to experiment with new technology and unthinkable political reform. Doing what you preach is at the core of a strong positioning strategy.

Journalist Kirsten Drysdale explains that:

“Estonia’s move to e-residency is often described as an example of a government acting like a startup, which is really a polite way of saying, ‘We’re not sure where this could go.’”

Many startups use the customer support service ZenDesk. Estonia does too. Not many countries treat foreigners like customers and respond to requests in less than 24 hours. Taavi Kotka didn’t talk about e-Residents, but rather “customers for Estonia” — a way to emphasize the willingness to treat them as nicely as possible.


Logo Zendesk


Besides having a customer support service, Estonia also sends newsletters to its e-Residents. It’s both a nice way to keep them informed and to have them become more familiar with the country.

What Startup Investors Think of Estonia

Estonia is innovative not only at the government level, but also at the business level. The Estonian startup ecosystem is growing increasingly fast at the moment.

According to The Economist, Estonia has the highest number of startups per inhabitant.

It seems that top investors trust Estonians for the quality of their businesses:

Naval Ravikant (founder of Angel List and a business angel himself) explained:

“If I see a company coming out of Estonia I am reasonably assured that it will be executed well. For its size, Estonia is generating more high quality startups than you would expect.”

After investing in TransferWise, a peer-to-peer money-transfer startup founded by two Estonians, Marc Andreessen (Founding Partner of Andreessen Horowitz) told Estonian President Toomas Hendrik Ilves: “Few factors get us as excited as Estonian founders!



These two quotes are striking examples of the Country-of-Origin Effect in play.

And since Estonians are so immersed in the startup scene, in spite of the size of the country, Dave McClure (founder of 500 Startups) refers to them as the “Estonian Mafia“—a word that now describes Estonian tech entrepreneurs.

How International Organizations Rank Estonia

International organizations like World Bank, World Economic Forum, OECD, The Heritage Foundation and others have acknowledged the Estonian economy as being open and competitive.

Here are some rankings shared by Invest in Estonia:

  • 8th in Index of Economic Freedom 2015 (Wall Street Journal/The Heritage Foundation)
  • 16th in Ease of Doing Business Report 2016 (World Bank)
  • 30th in Global Competitiveness Report 2015–2016 (World Economic Forum)
  • 26th in Corruption Perceptions Index 2014 (Transparency International)

Estonia's Positioning Strategy 1

Estonia’s success to develop its digital government strategy is the best message of all. Marketing goes beyond communication. It’s also about the product (reality). For Estonia, it’s about understanding what other governments and entrepreneurs want and how the country can help them achieve what they want.

Conclusion: So Estonia = Digital?

Several centuries ago, Colbert decided to position France as a reference in the luxury industry (and the country is still benefiting from this strategy).

For the past 25 years, Estonia has been building a positioning strategy around digital. The country has created frameworks from scratch as well as capitalized on its successes. The Skype mafia and the Playtech family are today very involved in building the startups of tomorrow. As entrepreneur Jake Horowitz wrote, the success of these startups was a turning point for the Estonian startup ecosystem.

The country also organizes flagship events to features its most prominent business people and startups like Latitude59 (in May/June) and sTARTUp Day (in December).

Many people say that Estonia is trying to be like Silicon Valley. I believe Estonia is building its own version of what an innovative powerhouse can look like by blending ideas from Silicon Valley, Delaware, and the opportunities that offer digital government technology.

Adopting the right positioning strategy will help Estonia have more important seat on the international scene.